th World KLEMS Conference Presentation 2016- Madrid · 2016. 5. 23. · Industry Origins of Manufacturing GVA Growth: India Overall Period: 1990-201221 8% 3% 4% 2% 9% 6% 4% 14% 9%

HOW DO ASIAN GIANTS CHINA AND INDIA COMPARE ON GROWTH AND PRODUCTIVITY?

K L KRISHNA CENTRE FOR DEVELOPMENT ECONOMICS, DELHI SCHOOL OF ECONOMICS, INDIA

HARRY X WUINSTITUTE FOR ECONOMIC INSTITUTE FOR ECONOMIC RESEARCHHITOTSUBASHI UNIVERSITY, JAPAN

DEB KUSUM DASRAMJAS COLLEGEUNIVERSITY OF DELHI, INDIA.

PILU CHANDRA DASDYAL SINGH COLLEGE ( EVENING)UNIVERSITY OF DELHI, INDIA

4th World KLEMS Conference Presentation 2016- Madrid

Structure of the presentation

1. Introduction

2. India and China in Global Perspective

3. Selective Review of Literature

4. Data, Methodology and Concordance

2

5. China and India comparisons: 1994-2012

6. China’s growth and productivity performance: 1990-2012

7. India’s growth and productivity performance: 1980-2011

8. Main Findings

9. Way forward

1. Introduction:

3

� Both China and Indiabegan their reformprocess with the period of1980s and 1990s. (1978 forChina; 1990-91 for India).

In 2014, we find large8000

10000

12000

14000

GD

P p

er c

apita

(co

nsta

nt 2

011

PP

P$)

Trends of per capita GDP:

India vs ChinaChina’s Accession to WTOReforms

begin for � In 2014, we find large

divergence in per capitaGDP between the twocountries.

� This study attempts tounderstand thedivergence in terms ofgrowth and productivity inChina and India.

0

2000

4000

6000

8000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

GD

P p

er c

apita

(co

nsta

nt 2

011

PP

P$)

Time Frame

China India

begin for India

2. Importance of China and India in the WorldEconomy:

4

� Population size and growth:

China with a little over 19% of the world population of about 7 billion, and India with a little lessthan 18% of the world population are the two most populous countries in the world. Duringthe decade 2000-10, population growth rates for China and India were 1.5%p.a. and 0.6%p.a.,respectively. Latest UN population projections indicate that India will have a population ofabout 1.4 billion in 2022, when China’s population will peak at this level. India’s population willpeak at 1.75 billion around 2065, when China’s will be about 1.25 billion.

� Income levels and Economic growth:

GNP (Gross National Product) per capita in 2010:

India: $ 1270, China: $4270, World: $9069

GNP per capita (PPP$) in 2010:

India: $3400, China: $7640, World: $11066

Average annual growth rate of GDP per capita,

2000-10:

India: 6.5%p.a., China: 10.2%p.a., World: 1.5%p.a.

3. Selective Review of Literature:

5

� Some major studies are reviewed to provide a background to the analysispresented in the latter sections.

� T.N.Srinivasan (2005)’s paper on South Asia and China devotes one subsection to acomparison of TFP growth in China and India based on Hu and Khan (1997),Jorgenson and Vu (2005) for China, IMF (2002), World bank (2000), Ahluwalia (1992)and Jorgenson and Vu (2005) for India. Srinivasan finds that by and large Chinaexperienced faster TFP growth than India during most of the 50 year period 1953-experienced faster TFP growth than India during most of the 50 year period 1953-2003, except during 1995-2003, when the TFP growth rates were the same(2.5%p.a.). However, the estimates were found to be highly sensitive to the dataused and the methodology of estimation.

� Bosworth and Collins (2008) study on growth and productivity in India usingsomewhat comparable data for the period 1968 to 2004 provides estimates ofTFPG for agriculture, industry and services sectors. During the period 1978-2004,the annual GDP growth rate per worker in China was 7.3% and in India a mere 3.3%.Capital deepening, education, and TFP contributed 3.2, 0.3 and 4.6 percentagepoints to labour productivity growth. The respective contributions in the case ofIndia were 1.3, 0.4 and 1.6 percentage points. The sectoral patterns of growth andproductivity differed considerably between the two countries.

3. Selective Review of Literature: Contd.

6

� Pranab Bardhan’s (2010) book, “Awakening Giants: Assessing the Economic Riseof China and India” is “erudite” and “informative”. He looks beyond short-runmacroeconomic issues and compares major policy changes, political andeconomic structures and sectoral productivity performance using Bosworth andCollins (2008) data. He investigates the pattern and composition of growth, andthe problems faced in the agricultural, industrial and infrastructure sectors. Hestudies the impact of these factors on poverty, inequality and environment. Hestudies the impact of these factors on poverty, inequality and environment. Heargues that authoritarianism has distorted Chinese development whiledemocratic governance in India has been marred by severe accountability lapses.

� The collection of ten essays, “Emerging Giants: China and India in the WorldEconomy” edited by B.Eichengreen, P.Gupta ad R. Kumar (2010) is in three parts:

� Part I: China and India in the Global Economy, with two comparative analyses,

� Part II: Contrasts in Development experience, with three comparative essays,

� Part III: Challenges to sustaining Growth, with a single comparative essay.

� The six essays, each comparing China and India on a specified theme are reviewedhere.


7

� In Chapter 1 of the book “What can be Learned About the Economies of China andIndia from Purchasing Power Comparisons?” Alan Heston who has long beenassociated with the UN International Comparisons Program (ICP) develops estimatesof the relative size of the two economies. He draws attention to data deficiencies andbig differences in estimates reported by researchers. According to Heston, China andIndia started at a similar level of income in the 1950s, and there has been a widedivergence since 1978, with the Chinese economy growing much faster and becomingdivergence since 1978, with the Chinese economy growing much faster and becomingmuch larger as a result of the first wave of reforms. He draws o the 2005 data atpurchasing power parity (PPP) provided by the ICP. These estimates show botheconomies to be smaller than previously thought. New estimates of price levels, theway different regions in the world are linked, and downward adjustments to theproductivity of the public sector appear to account for the differences between thetwo sets of estimates.

� China and India have come to play an increasingly important role in global trade. Theprocessing exports of China to the USA and the outsourcing of services to India withits implications for the employment of skilled workers in the USA, have receivedconsiderable attention. In Chapter 2 “Trading with Asian Giants”, Bosworth, Collins andFlaaen examine US trade with both countries. The authors note that the USA tradedeficit is due more to unusually low USA exports than to unusually high imports fromChina and India.


8

� Chapter 4 “The Cost competitiveness of Manufacturing in China and India: AnIndustry and Regional Perspective” authored by van Ark, Erumban, Chen andKumar, offers several comparison and contrasts. Productivity in India and Chinaat the industry and provincial levels are compared. It is found that productivityin Chinese industry has been increasing over time and that this increase is quiteuniform across provinces. In comparison, productivity growth is slower in Indiaand there is considerable heterogeneity across provinces. The authors attributeand there is considerable heterogeneity across provinces. The authors attributethe superior performance in China to faster implementation of market reformsin China and to lower factor mobility in India.

� Chapter 5 “Law, Institutions and Finance in China and India” with Allen,Chakrabarti, De, Qian and Qian as authors, compares the legal and financialsystems and explores their implications for economic growth. The authors showthe two systems are underdeveloped in China. In spite of its origin in Englishcommon law and the presence of an independent judiciary, investmentprotection and the quality of financial institutions remain weak in India. Theauthors point to informal finance and relational lending as mechanisms bywhich the two countries have surmounted financial obstacles to growth.


9

� Kowalski compares in Chapter 6 “A Tale of Two Trade Integration Approaches”trade and foreign investment liberalisation in China and India. The differences inapproach have resulted in different sectoral growth patterns, with trade andgrowth led by manufacturing in China and by services in India. The author’ssimulations show that the implementation of China’s General Agreement onTrade and Services (GATS) commitments would create important gains forChina and its trading patterns. In India’s case, further expansion of trade willrequire removing residual barriers at the border, implementing reforms inlabour laws, promoting labour mobility and improving infrastructure.labour laws, promoting labour mobility and improving infrastructure.

� In Chapter 8 “Deconstructing China’s and India’s Growth: The Role of FinancialPolicies”, Jahangir Aziz underscores the importance of financial reform forsustaining growth in the two countries. He observes that the cost of capital isquite distorted in both countries. In China it is depressed as a result ofpermissive policies toward non-performing loans, resulting in an inefficientlyhigh level of investment. In India, in contrast, the cost of capital is elevated bylimited financial sector competition and to absorption of resources by the State,resulting in inefficiently low level of investment. With the low-hanging fruitgetting exhausted, the urgency of comprehensive financial reform has becomeobvious.

The six essays in Emerging Giants reviewed above have important policylessons for economic growth in both China and India. A detailed, carefulstudy of the analyses reported is called for.


10

� Justin Y. Lin (2013) “The Chinese Miracle Demystified” in D. Acemoglu et al(eds.) “Advances in Economics and Econometrics” Vol II “AppliedEconomics”, analyses five reasons for China’s extraordinary performancein Transition. Lin draws attention to the finding of the Commission onGrowth and Development headed by Michael Spence that 13 of the World’seconomies achieved an average annual growth of 7%p.a. or more for 25years or more. The first of five common features of these 13 economies isyears or more. The first of five common features of these 13 economies istheir ability to tap into the potential of the advantage of backwardness.The remaining features are macroeconomic stability, high rates of savingand investment, market system, and committed, credible and capablegovernment.

Lin outlines Lessons of China’s Development for other DevelopingCountries. Every developing country has the opportunity to accelerate itsgrowth if it knows how to develop industries according to its comparativeadvantage at each level of development. Lin has elaborated his theis is hisbook “The New Structural Economics” (2012).

4. Data, Methodology and Concordance: Data

� Main sources of data: China KLEMS dataset & India KLEMS dataset 2015 version

� Main Variables in the Paper:

11

Variable India ChinaGross Value Added NAS data 1980-2011

Labour-No. Of Persons

Labour Compensation NSSO Employment-Unemployment Data

Capital Services NAS and ASI

Labour Income Share NAS data 1980-2011

Methodology:

� Labour Productivity = Real value added per person

� TFP growth – using Growth Accounting method (Jorgenson et al2005)

� TFPG in Industry j:

12

where is the TFP growth rate, growth rate of realvalue added and are respectively the compensationshares of capital services and labor input in nominal value added

� Aggregate Sector VA growth = weighted sum of VA growth inindustries (Tornvqvist Aggregation)

�

Concordance between China and India’s Industrial Classification:

13 CHINA KLEMS Industry Description INDIA KLEMS Industry Description

Agriculture, Forestry, Animal Husbandry and Fishery Agriculture,Hunting,Forestry and Fishing

Coal mining

Mining and Quarrying Oil and gas extraction

Metal mining

Non-metallic minerals mining

Food and kindred productsFood Products, Beverages and Tobacco

Tobacco products

Textile mill products

Textiles, Textile, Leather and FootwearApparel and other textile products

Leather and leather products

Saw mill products, furniture, fixtures Wood and of Wood and Cork

Paper products, printing & publishing Pulp, Paper,Paper,Printing and Publishing

Petroleum and coal products Coke, Refined Petroleum and Nuclear fuel

Chemicals and allied products Chemicals and Chemical Products Chemicals and allied products Chemicals and Chemical Products

Rubber and plastics products Rubber and Plastics

Stone, clay, and glass products Other Non-Metallic Mineral

Primary & fabricated metal industriesBasic Metals and Fabricated Metal

Metal products (excl. rolling products)

Industrial machinery and equipment

Machinery, nec. Electric equipment

Electronic and telecomminucation equipment

Instruments and office equipment Electrical and Optical Equipment

Motor vehicles & other transportation equipment Transport Equipment

Miscellaneous manufacturing industries Manufacturing, nec; recycling

Power, steam, gas and tap water supply Electricity, Gas and Water Supply

Construction Construction

Wholesale and Retail Trades Trade

Hotels and Restaurants Hotels and Restaurants

Transport, Storage & post Transport and Storage

Information & computer services Post and Telecommunication

Financial Intermediation Financial Intermediation

Real Estate Activities

Leasing, Technical, Science & Business Services Business Service

Public Administration and Defense Public Administration and Defense; Compulsory Social Security

Education Education

Health and Social Security Health and Social Work

5. China and India performance comparison:

14

performance comparison: 1991-2012

China & India

Note on Periodization:

� Choice of sub-periods for comparing India andChina’s growth and productivity performance isbased on changes in world scene.

� There have been no studies that analysedstatistical breaks in World GDP (using Bai-Perron

15

statistical breaks in World GDP (using Bai-Perrontests)

� Based on graphical analysis of World GDP atconstant prices, five sub-periods have beenidentified.

� These sub-periods are: 1991-1993; 1994-2000(East Asian Crisis) ; 2001-2003; 2004-2008; 2008-2012(post Global Recession)China & India

1. It is clear from this diagram that the Economy-wide GVA in China has been growing at a faster rate than in India. 2. This is true for every sub-period, with greater divergence in Sub-Period 4 and Sub-Period 5.

600

700

800

900

Grw

oth

Inde

x of

GVA

(re

al)

Comparison in terms of GVA Growth

Divergence

Sub-Period 5

Sub-Period 4Sub-Period 3


Index:1990-100

16

0

100

200

300

400

500

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Grw

oth

Inde

x of

GVA

(re

al)

Time Frame

China India

DivergenceLargest here

China & India

1. We find that Services and Manufacturing have played important role in the growth process for China in each sub-period. 2. On the contrary, the Manufacturing sector has been largely missing in India. It has only seen a surge in Services

1

2

3

4

5

6

Sectoral Origins of GVA Growth: ChinaBoth Services and Manufacturing play an important role

17

-1

0

1

1991-2012 1991-1993 1994-2000 2001-2003 2004-2007 2008-2012

-1

0

1

2

3

4

5

6

1991-2012 1991-1993 1994-2000 2001-2003 2004-2007 2008-2012

Sectoral Origins of GVA Growth: India

Agriculture Mining Manufacturing Electricity

Services contribution overshadows other in each period

China & India

1. For China, Services and electricity have consistently shown negative contributions, while manufacturing and construction have shown positive trends. 2. Services in India have seen consistently positive TFP growth along with electricity.

-5

0

5

10

15

20

25

1991-2012 1991-1993 1994-2000 2001-2003 2004-2007 2008-2012

TF

P G

row

th R

ate

TFP Growth Rate by sub-periods: China18

-20

-15

-10

-5

TF

P

Time Periods

-10

-5

0

5

10

15

1991-2012 1991-1993 1994-2000 2001-2003 2004-2007 2008-2012

TF

P G

row

th R

ate

Time Periods

TFP Growth Rate by sub-periods: India

Agriculture Mining Manufacturing Electricity Construction ServicesChina & India

1. The chosen period for comparison of manufacturing sector in the two countries is 1994-2007. 2. This is the period of high World GDP growth. This period has also seen an acceleration in economy-wide GVA growth for both China and India.

10

12

14

Gro

wth

Rat

e of

GV

A (

real

)

Manufacturing: Choice of Study Period

Periods with most accelerating Economy-wide GVA growth for

19

0

2

4

6

8

1991-2012 1991-1993 1994-2000 2001-2003 2004-2007 2008-2012

Gro

wth

Rat

e of

GV

A (

real

)

Time Frame

China IndiaChina & India

1. It is clear that China outperformed India in manufacturing GVA growth in each of the high growth sub-periods. 2. The trends for both the countries take a dip during the East Asian crisis.

15

20

25

Man

ufac

turn

g G

VA g

row

th ra

te

Performance of Manufacturing GVA

Sub-Period 2

Sub-Period 3

Sub-Period 4

20

0

5

10

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Man

ufac

turn

g G

VA g

row

th ra

te

Time Frame

India China

East Asian

Crisis

Higher growth for China

than India in all periods

China & India

1. Metal Products and Electrical Equipments had the largest contribution to manufacturing GVA growth for China. Similar results hold for India. 2. Food beverages & tobacco and Non-metallic mineral products also perform well for Indian manufacturing sector.

9%7%

3%

Industry Origins of

Manufacturing GVA

Growth: China

12%

7% 1%10%

8%

3% -1%

Industry Origins of Manufacturing GVA

Growth: India

Overall Period: 1990-201221

8%

3%

4%

2%

9%

4%6%14%

9%

14%

8%

7%

5%

10%

8%5%11%

11%

8%

Food,Beverages &Tobacco Textiles

Wood Products Pulp, Paper,Printing & Publishing

Coke & Petroleum Products Chemicals & Chemical Products

Rubber & Plastic Products Non-Metallic Mineral Products

Metal Products Machinery, nec.

Electrical & Optical Equipment Transport Equipment

Manufacturing, nec; recycling ReallocationChina & India

1. Although China manufacturing outperformed India in GVA growth, its TFP growth has been more volatile than that of India. 2. After a period high stable TFP growth for China, it took a plunge post 2003.

8

10

12

Trend of TFP in Manufacturing: China vs India

Sub-Period 2 Sub-Period 3

Sub-Period 4

22

-8

-6

-4

-2

0

2

4

6

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Gro

wth

Rat

e of

TF

P

Time Frame

India

Highly consistent TFP growth for China

India’s TFP higher than that of

China China & India

1. The choice of sub-period for comparing the service sector of the two countries is 2004-2012.

2. This is the period of post pro-market reforms for both the countries (post liberalisation phase in

India and accession to WTO for China).

3. These two sub-periods show the best performance of the services sector for both the countries.

4.00

5.00

6.00

Con

trib

utio

n to

GVA

gro

wth

Services: Choice of Study Period

Period where Both China and India have

good Services performance

23

0.00

1.00

2.00

3.00

1991-2012 1991-1993 1994-2000 2001-2003 2004-2007 2008-2012

Con

trib

utio

n to

GVA

gro

wth

Time Frame

Services-China Services-IndiaChina & India

1. GVA of India’s Service Sector is much more stable than that of China. 2. It has hovered around the 8-10% p.a. for the entire period, while China’s reached a peak of 16% just before the Global Recession

10

12

14

16

18

Ser

vice

s G

VA

grow

th ra

te

Performance of Services GVA growth

Sub- Period 4 Sub-Period 5

24

0

2

4

6

8

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ser

vice

s G

VA

grow

th ra

te

Time Frame

India China

Big plunge for China after 2008 CrisisStable Growth for India

for both periods.

China & India

1. Trade has been the largest contributor to Services growth for China while Health performs poorly. 2. The same trend is seen for India as well – Trade the largest contributor and Health performing the worst as contributor to Services growth.

21%2%13%

2%

Origins of Services GVA

Growth: China

26%6%

2% 8%4%

Origins of Services GVA Growth:

India


21%

5%

10%

7%

13%

12%

10%

5%

2% 26%

3%

11%

6%14%

12%

8%

6%

Trade Hotels & Restaurants Transport & Storage

Post & Telecommunication Financial Services Business Service

Public Administration Education Health & Social Work

Other services ReallocationChina & India

1. The TFP growth rate in the services sector has generally been higher for India compared to China. As is evident, it is also more stable than China. 2. The TFP growth in China shows a steep increasing trend till 2008, but then gets hit due to the Global Recession.

2

4

6

Trend of TFP in Services: China vs India

Onset of Global RecessionSub-Period 4

Sub-Period 5

26

-8

-6

-4

-2

02003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gro

wth

Rat

e of

TF

P

Time Frame

India China

China TFP got hit by the Recession. India’s more stable., although it takes a minor hit too.

Sharp Increase

China & India

6. China’s Growth and Productivity

27

Productivity Performance: 1990-2012

China


� The entire period of analysis covers 1990-2012 (23 calendaryears)

� Periodization is based on events affecting the Chineseeconomy

� The entire period has been divided into 4 sub-periods: 1990-

28

� The entire period has been divided into 4 sub-periods: 1990-1995; 1995-2001; 2001-2008; 2008-2012

� Characterization of each sub-period:

1. 1990-1995 (Sub-Period 1): phase driven by govt led changes

2. 1995-2001(Sub-Period 2): series of reforms, particularly instate owned enterprises

3. 2001-2008 (Sub-Period 3): post WTO accession – businessoriented environment

4. 2008-2012 (sub-Period 4): post Global financial crisis.China

1. China’s GVA growth has been generally high since its accession to WTO in 1991. It has hovered between 9 and 11% p.a. in sub-periods. 2. The Global recession of 2008 didn’t affect its overall GVA growth to a large extent. However, it has seen a somewhat downward trend in Sub-Period 4.

10.00

12.00

14.00

16.00

Gro

wth

rat

e of

GV

A (

real

)

GVA Growth rate of the Total Economy: China

Sub-Period 1

Sub-Period 2


Total Economy

29

0.00

2.00

4.00

6.00

8.00

10.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gro

wth

rat

e of

GV

A (

real

)

Time FrameGVA Growth rate Subperiod Averages

Global RecessionSomewhat more

volatile growth

Accession to

WTO

China

1. We find that Manufacturing and Services has been important contributors to GVA growth in every period, especially 3 and 4. 2. Agriculture contribution has been decreasing and played a small role only in period 2.

10.0

12.0

14.0

16.0

Gro

wth

rat

e of

GV

A (

Rea

l)

Sectoral Contributions to GVA Growth: China

Period 1

Period 2

Period 3

Period 4

Total Economy

30

-2.0

0.0

2.0

4.0

6.0

8.0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gro

wth

rat

e of

GV

A (

Rea

l)

Time Frame

Agriculture Mining Manufacturing Electricity

Important contribution of

manufacturing in high growth phase

High Services

Contribution

Agriculture contribution only in

this period

China

1. The performance of manufacturing industries has been much better than that of services (much more scattered). 2. Transport and Electrical Equips have been the best performers. Health and Education have had very low growth rates.

Wood Products Electrical Equip.

Transport Equip.

Post and Telecommunication

12.00

14.00

16.00

18.00

Gro

wth

rate

of G

VA (

real

)

Disaggregated Performance: ChinaOverall Period: 1990-2012

31

Coke and Petrol Prods

Education Health

0.00

2.00

4.00

6.00

8.00

10.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Gro

wth

rate

of G

VA (

real

)

KLEMS Industry Codes

Agriculture Mining Manufacturing Electricity Construction ServicesChina

Electrical & Optical Equipment

Manufacturing, nec; recycling

Construction

Hotels & Restaurants

Post & Telecommunication

Business Service

Education

Other services

Sources of GVA Growth: Disaggregate Picture

Services

TFP negative for most

Services industries,

contrasting with India.


Capital Stock and TFP have

32

Agriculture

Food,Beverages &Tobacco

Wood Products

Coke & Petroleum Products

Rubber & Plastic Products

Metal Products


-10.00 -5.00 0.00 5.00 10.00 15.00

Growth rate of Inputs

No of Persons Labour Quality Capital Stock Capital Composition TFP

Manufacturing

Capital Stock and TFP have

been important contributors to

growth for most of the

manufacturing industries.

China

1. The importance of TFP growth for manufacturing and Agriculture is clearly seen from its upward trends. 2. Electricity (with heavy govt intervention) and Services have shown slightly declining trends.

250

300

350

TF

P G

row

th In

dex

Trend of TFP Growth: Broad Sectors

Period 1

Period 2

Period 3

Period 4

Index: 1991=100

High TFP growth for agriculture

Turning point for Manufacturing

33

0

50

100

150

200

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

TF

P G

row

th In

dex

Time Frame

Agriculture Mining Manufacturing Electricity Construction Services

Declining trend for Services and Electricity in all sub-periods

Turning point for Manufacturing

China

1. It is clear from the comparison that TFP has been more important contributor for growth in the manufacturing industries than the services industries in each sub-period. 2. Even in manufacturing, the TFP gets stagnant in later sub-periods.

Metal Products

Machinery, nec.


Transport Equipment


TFP Growth Rate by Sub Periods: Manufacturing

Education

Health & Social Work

Other services

TFP Growth Rate by Sub Periods: Services

34

-15.00 -10.00 -5.00 0.00 5.00 10.00 15.00


Textiles

Wood Products

Pulp, Paper,Printing & Publishing


Chemicals & Chemical Products


Non-Metallic Mineral Products

TFP Growth Rates

2009-2012 2002-2008 1996-2001 1990-1995

-20.00 -15.00 -10.00 -5.00 0.00 5.00 10.00

Trade


Transport & Storage


Financial Services

Business Service

Public Administration

TFP Growth Rates

2009-2012 2002-2008 1996-2001 1990-1995China

1. LP growth in the manufacturing sector has exceeded that in all other sectors. The gap has increased in each period. The trend in all other sectors has been relatively flat. 2. Thus LP growth has been an important source of growth for the manufacturing sector in each time period.

1200

1400

1600

1800

LP G

row

th R

ate

Labor Productivity Growth: Broad SectorsPeriod 4

Period 3

Period 2

Period 1

Index: 1980=100

Manufacturing outstanding performer

35

0

200

400

600

800

1000

LP G

row

th R

ate

Time Frame


Large Divergence here

Relatively flat for other sectors

China

1. Labour Productivity has been a positive contributor to growth for manufacturing industries in each sub-period. Same is not the case for Services. 2. Post and Telecommunication Have shown high positive contribution throughout.

Metal Products

Machinery, nec.


Transport Equipment


LP Growth Rate by Sub Periods: Manufacturing

Education


Other services

LP Growth Rate by Sub Periods:

Services

36

-10.00 -5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00


Textiles

Wood Products






TFP Growth Rates

2009-2012 2002-2008 1996-2001 1990-1995

-15.00 -10.00 -5.00 0.00 5.00 10.00 15.00

Trade


Transport & Storage


Financial Services

Business Service


TFP Growth Rates

2009-2012 2002-2008 1996-2001 1990-1995China

Electrical & Optical EquipmentTransport Equipment

Manufacturing, nec; recyclingElectricity, Gas & Water Supply

Construction Trade

Hotels & Restaurants Transport & Storage

Post & TelecommunicationFinancial ServicesBusiness Service

Public AdministrationEducation

Health & Social Work Other services

Sources of Labour Productivity Growth: Industry level

TFP again shows negative contribution to LP growth. Labour composition plays an important role though.

Period: 1990-2012

Services

37

-15.00 -10.00 -5.00 0.00 5.00 10.00 15.00 20.00

AgricultureMining & Quarrying

Food,Beverages &TobaccoTextiles

Wood ProductsPulp, Paper,Printing & Publishing

Coke & Petroleum ProductsChemicals & Chemical Products


Metal ProductsMachinery, nec.


Labour Productivity Growth Rate

Capital- Labour Ratio Labour Composition TFP

Manufacturing

K/L ratio most important contributor to LP growth here

China

1. The relationship between TFP and LP growth here is different from that of India’s. 2. The industries in the Manufacturing sector are more scattered. The relationship is stronger for Services sector.

Textiles

Manufacturing, necPost and

Telecommunication2.00

4.00

6.00

8.00

TF

P G

row

th R

ate

Relation Between LP Growth and TFP growth38

Coke and Petrol Prods

Financial Services

Other Services

-12.00

-10.00

-8.00

-6.00

-4.00

-2.00

0.00-4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00

TF

P G

row

th R

ate

LP growth Rate

Manufacturing Services Agriculture Mining Electricity ConstructionChina

7.India’s Growth and Productivity

39

Productivity Performance: 1980-2011

India


� The analysis covers the period of 1980-81(1980) to 2011-12(2011).

� We follow the Panagariya et al (2014) periodization for theIndian Economy.

� The sub-periods are as follows: 1980-1993; 1994-2003; 2004-

40

The sub-periods are as follows: 1980-1993; 1994-2003; 2004-2011.

� Justification for the periodization:

1. 1980-1993 (Sub-Period 1): period of relatively low growth

2. 1994-2003 (Sub-Period 2): onset of reforms, growth a bithigher

3. 2004-2011 (Sub-Period 3): high growth phase

India

1. The trend of Gross Value Added has been generally upwards in the Indian Economy. 2. There have been certain crests and troughs, most notably during the Balance of Payments (BoP) Crisis of 1991 and the Global Recession of 2008. 3. The 2000s have been the highest growing phase with an average of almost 9%p.a.

1980 1985 1990 1995 2000 2005 2010

7.00

8.00

9.00

10.00

6.00

7.00

8.00

9.00

Gro

wth

rate

of G

VA (

real

)

GVA Growth rate of the Total Economy: India

Sub-Period 1 Sub-Period 2

Total Economy Highest

growing

phase

41

0.00

1.00

2.00

3.00

4.00

5.00

6.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Gro

wth

rate

of G

VA (

real

)

Time Frame

Subperiod Averages GVA Growth rate

BoP Crisis and onset of Economic Reforms

Global Recession

Sub-Period 3

India

1. Much of the growth in each year has been coming from the Services sector as a whole. This is true for every sub-period in consideration.2. The labour reallocation term is positive only in Sub-Period 3.3. Most other sectors have minor contributions, with manufacturing in the third period.

6.0

8.0

10.0

Gro

wth

Rat

e of

GVA

(re

al)

Sectoral Contribution to GVA Growth: IndiaTotal Economy

Large Services contribution

42

-4.0

-2.0

0.0

2.0

4.0

Gro

wth

Rat

e of

GVA

(re

al)

Time Frame

Agriculture Mining Manufacturing Electricity Construction Services Realocation

Sub-Period 1 Sub-Period 2 Sub-Period 3

India

1. Going from the Broad Sectors to the Individual Industries, we find that Post and Telecommunication, Financial Services and Business Services have been the best performers in the overall period. 2. Wood Products and Agriculture have been the worst performers.3. Most other industries in the manufacturing and services sector show average growth of around 6-8%p.a.

Chemicals

Rubber Prods.


Financial Services

Business Services

10.00

12.00

14.00

16.00

Gro

wth

rate

of G

VA

(re

al)

Disaggregated Industry GVA

growth performance: India


43

Wood Products

Rubber Prods.

Metal Products

Financial Services

Other Services

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Gro

wth

rate

of G

VA

(re

al)

India KLEMS Industry Codes

Agriculture Mining Manufacturing Electricity Construction ServicesIndia



Construction Trade





Sources of GVA Growth: Disaggregate Industrial Level Picture

Services

TFP is important in

the Services industry


44








-5.00 0.00 5.00 10.00 15.00

Growth rate of Inputs and TFPNo of Persons Labour Quality Capital Stock Capital Composition TFP

Manufacturing

Large contribution of

capital stock in most

industries

India

1. The importance of TFP as a source of growth for the Services sector can be seen from this trend line. The only rival sector is mining.2. Manufacturing, Construction and other sectors show stagnant TFP growth

120

140

160

180

200

TF

P G

rwot

h In

dex

Trend of TFP Growth: Broad Sectors

Sharp increasing trend

Divergence larger post reforms

Index:1980=100

45

0

20

40

60

80

100

TF

P G

rwot

h In

dex

Time Frame


Sub-Period 1 Sub-Period 2 Sub-Period 3

Sectors with Stagnant TFP

reforms

India

1. Post and telecommunication has been the most productive industry in the services sector in TFP terms while Other services and Health have regressed. 2. TFP growth has been modest in the manufacturing industries, with Electrical Equipment the best performer.

Metal Products

Machinery, nec.


Transport Equipment


TFP Growth Rate by Sub Periods: Manufacturing

Education


Other services

TFP Growth Rate by Sub Periods:

Services

Regression in TFP

46

-10 -5 0 5 10


Textiles

Wood Products






Metal Products

TFP Growth Rates

2004-2011 1994-2003 1980-1993

-5 0 5 10

Trade


Transport & Storage


Financial Services

Business Service


TFP Growth Rates

2004-2011 1994-2003 1980-1993

Consistent performer Best Performer

India

1. Labour Productivity has been upward rising for most of the industries. Only the construction and agriculture sectors are stagnant. 2. Manufacturing and Services follow very similar trends.3. Divergence is mostly in the 3rd period while the trends are very closely knit in 1st period.

300

350

400

450

500

Inde

x

Labor Productivity Growth: Broad Sectors

Sub-Period 1 Sub-Period 2Sub-Period 3

Sharp increasing trendClosely knit.

Index: 1980=100

47

0

50

100

150

200

250

300

LP G

row

th

Inde

x

Time Frame


Sectors with Stagnant LP

Divergence between most sectors and construction and agriculture

Sharp increasing trendClosely knit.

India

1. LP growth has been generally accelerating through the time periods for both the Manufacturing and Services Industries. 2. Post and Telecommunication and Wood Products have accelerated the most.

Metal Products

Machinery, nec.


Transport Equipment


LP Growth Rate by Sub Periods: Manufacturing


Education


Other services

LP Growth Rate by Sub Periods:

Services

48

-10 -5 0 5 10 15


Textiles

Wood Products






Metal Products

TFP Growth Rates

2004-2011 1994-2003 1980-1993

-5 0 5 10 15

Trade


Transport & Storage


Financial Services

Business Service


TFP Growth Rates

2004-2011 1994-2003 1980-1993India



Construction Trade





Sources of Labour Productivity Growth: Industry level

Services


K/L ratio very

TFP has a larger

impact in these

industries

49

-6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00








Labour Productivity Growth Rate

Capital- Labour Ratio Labour Composition TFP

Manufacturing

K/L ratio very

important

contributor

here, TFP has

mixed impact

India

1. We find that the relationship between TFP and LP growth is more pronounced in manufacturing than in services. 2. The services industries are more scattered.

Chemicals


Public Admin

4

6

8

TF

P G

row

th R

ate

Relationship between LP Growth and TFP GrowthOverall Period: 1980-2011

50

Wood ProductsCoke and Petrol Prods

Other Services

-8

-6

-4

-2

0

2

-4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00

TF

P G

row

th R

ate

Labor Productivity Growth Rate

Manufacturing Services Agriculture Mining Electricity ConstructionIndia

8. Main Findings:

� Despite the onset of reforms at similar points of time, China has surged ahead of India in terms of per capita GDP from the 1990s.

� This surge for China has come through the Manufacturing and Services sectors, while India’s growth is solely Services-driven.

� While the industry origins of Manufacturing GVA has been similar for both countries (Metal Products and Electrical Equipments

51

for both countries (Metal Products and Electrical Equipments major contributors), the GVA growth and TFP growth have been higher and more stable for China than in India.

� On the contrary, the GVA growth rate of the Services sector has been more stable for India than China. The same holds true for TFP growth trend of the two countries.

� The industry origins of Services growth for the two countries have been similar – mostly trade driven, with Health the worst performer.

9. Way forward:

� To present a disaggregated view of Chinese andIndian productivity and growth using the KLEMSapproach.

� To undertake productivity level comparisons

52

� To undertake productivity level comparisonsbetween China and India.

� To examine the sources of Chinese and Indiangrowth experience.

Acknowledgment53

� Financial Support to the INDIA KLEMS researchproject by RESERVE BANK OF INDIA is gratefullyacknowledged

� The authors would like to thank ShomakChakraborty for research assistance on thisproject

Documents

th World KLEMS Conference Presentation 2016- Madrid · 2016. 5. 23. · Industry Origins of Manufacturing GVA Growth: India Overall Period: 1990-201221 8% 3% 4% 2% 9% 6% 4% 14% 9%